Question

how does aggregate demand and aggregate supply get affected by a trade war? And how does a country like Australia get affected by the current trade war between China and the United states?

Answer 1

Aggregate demand and aggregate supply plays a very important role in determining the level of output and price in the economy which will ultimately determine employment level. Aggregate demand is the sum total of the spending from consumers, government and net exports at different prices. Demand and price has an inverse relationship Aggregate supply is defined as the total amount of output to be produced at different prices. Supply has a direct relation with price. In case of trade war, the trade policy between the countries are changed that results in a change in the net export and import. We can see that in case of tariff, domestic aggregate demand will increase. Imports will be reduced It will reduce domestic aggregate supply as the cost of imported resources will be more in the country imposing tariff. There will be reverse case in the country where tariffs will be levied. Trade wars are meant to protect domestic industries and to increase job opportunities.

There is a situation of trade war between China and United States. The effect of tariff imposition by both the countries has an adverse effect on Australian China is the biggest export market for Australia. Due to tariff policies the economic activities in China is also affected which will ultimately reduce the demand for Australian commodities like coal, iron ore. Export of food items are also affected. Both China and US altogether do 30% direct investment in current stock of Australia but the tariff policy affect the investment process and the Australian economy as well. It is expected that the trade war might lead to a loss of 36 billion dollar for Australia Weakening position of Chinese currency results in a negative impact for eduction and resource sector of Australian.

All these are results of trade war between China And United States. Steps should be taken to avoid this condition of war to protect the economic deterioration of countries like Australia